Airbnb, Inc. (ABNB) Earnings Call Transcript & Summary

Great. Well, good afternoon, everybody, and thanks for joining us here for the 2:30 session. For those who don't know me, I'm Richard Clarke. I'm the analyst that covers the global hotel and leisure sector. I'm absolutely delighted to be joined by Airbnb's CFO, Ellie Mertz. Thanks for joining us. For anyone who hasn't managed to stay on one of these sessions at this stage of the conference, just a reminder that any questions you'd like me to include into my questions, please put them in the Pigeonhole, and I'll include them. As long as they're not kind of customer feedback on an Airbnb property, I can probably include them into my listings. Some of you probably were there yesterday, but I've pitched Airbnb as my best idea -- the Best Ideas day on Tuesday, apologies. What I said is that this is a company that everyone should love, right? It's just up 18% revenue growth quarter, margins are in the mid-30s and converting more than 100% of that EBITDA into free cash flow, and then beginning to talk about optionality that could grow faster than that.

So why do you think that not everyone does sort of love maybe Airbnb on the investment side? What do you think is maybe misunderstood at this point?

Everyone doesn't love us?

I do.

Okay.

Don't look at me.

Well, first, thanks for having me. I think there's a couple of components about our core business that people probably don't fully appreciate. I think it's -- hopefully, obviously, we have a very strong brand. We like to say that Airbnb is a noun and a verb. We have extremely high customer awareness. And I think some investors take from that, that everybody who's going to try Airbnb has already done so. And I think what's interesting in the underlying data that we look at is that, across the world, there is a relatively strong brand awareness, but there continues to be a gap around consideration, meaning a lot of people have heard about Airbnb, but they haven't yet tried it. Or they tried us once, but they don't try us for every travel experience that we have. And what this tells us is that there's a huge opportunity, both globally as well as our core markets, to continue to explain why Airbnb is actually much better for various types of travel, and to convert some of that awareness into incremental consideration and incremental bookings. I think we'll talk about it throughout this session. But there's various aspects of our road map that are specifically focused on bridging that consideration gap, in particular, making sure that Airbnb is increasingly reliable, it's increasingly affordable and that the product is extremely easy to use. And we view each of these as really nice growth levers in terms of driving the core business. I think the second component about the business, as it exists today, that investors don't always have an appreciation for is that, for the past decade, Airbnb has indeed been a global brand. And we have a presence in over 220 countries and regions across the globe. And I think when people hear that, they assume that we have covered the globe, and there's nowhere else to go. And yet, when we look at the data internally, what we see is that we have varying levels of penetration across the globe. And in fact, today, our top 5 core markets continue to be the vast majority of our business, whereas the level of penetration that we've been able to achieve in those core markets is, in many cases, an order of magnitude higher than it is in the rest of the market. And that's what gives us the encouragement to continue to focus on new markets, to really focus on and deploy our full funnel of global marketing approach and to localize. Because the opportunities that -- across a vast array of markets continues to be quite large.

Fantastic. So maybe just moving on to some more kind of granular points. But the demand environment at the moment, I mean, are we in a normal world? I mean have all of us sort of has returned back to urban and international travel? Or are there still some normalization trends to come? And are those -- would you see those as being positive or negative for Airbnb?

I mean, I think the question of are we in a normal world is a big one. I think I'll try to tackle it just from a travel perspective.

Yes.

Yes. When we look at the last couple of years, I think every year, post the beginning of the pandemic, the question was, are we finally back to normal? And I think that kind of COVID tail was, frankly, much longer than any of us would have anticipated, creating a lot of volatility across, obviously, 2020, but continuing into '21, '22 and '23. And I think what we have seen so far in '24 is that, I hate to call this now, but I do think '24 is probably the first normal year in that we're seeing a level of stability on leisure travel that stands, I would say, in quite contrast to the volatility we saw in the preceding 3 years. So I would say, generally speaking, yes, travel has "returned to normal." That being said, I would say, for our business, I won't speak more broadly to travel, but for our business, the new normal is a little bit different than it would have been in the counterfactual. Specifically, what I'm talking about is that, I think there's some certain segments on our platform that, frankly, did get a COVID boost that has sustained. So in particular, we've seen that nonurban markets continue to be more popular today than they were in 2019. And I think that's something that's here to stay on our platform. I think the same is true in terms of long-term stays. It's a bigger portion of our business than it was in 2019, and that will continue to be the case. And then I think when you look around the globe, the recovery from COVID for travel has been, frankly, not consistent around the world. I think for us, what we've seen is that Lat Am probably got a nice boost in terms of the COVID recovery relative to the counterfactual, whereas APAC has lagged. And I think while APAC lagging has been a bit of a disappointment over the last couple of years, on the upside, it's a huge opportunity for us in terms of future year growth and gaining penetration in that market that remains relatively small for us.

Great. Maybe one of the recent trends we've seen is the increase in group travel. Maybe you can talk to what's driven that? Has it been -- and do you see that as an incremental opportunity? Or are you just seeing people that would have traveled in smaller groups now traveling in larger groups?

Yes. So something that we shared in our most recent earnings report is that we're actually seeing the strongest growth in larger group size. I think there's a couple of factors here. I think, first and foremost, Airbnb is frankly just really good for group travel. We, as part of our most recent marketing campaigns, have been highlighting the use cases where it's actually better to travel through Airbnb than through a hotel. Those cases are when you're traveling with your small children, and you're stuck -- I see some people nodding, thank you. You're stuck in a single hotel room and your 2-year-old need to go to bed at 7 p.m., and all of a sudden, your new bed time is 7 p.m. That's a use case where it's better to be in an Airbnb, where you have a home, and you can put your child to bed and still stay up like a normal adult. Also, traveling with a group of adults to get away from children, we go to a hotel, and there's other people's children. You kind of defeated the purpose. There's a whole series of use cases around group travel, where we feel like we offer a really differentiated offering. And I think we're seeing it in the numbers with regard to the popularity of using Airbnb for group travel. Another component that I'd just highlight is we've also most recently made it easier and, frankly, better to travel as a group on Airbnb. We've recently upgraded all of our group travel features, in particular, our Wishlists. One way that consumers find the perfect listing for them is to create a wishlist of places that they are considering for a specific trip. And what we've recently done is make that an interactive tool, where group members of the traveling trip can collaborate online to choose that perfect listing for them. And they can also now communicate directly with the host, even if you are not the primary booker. You'll see us continuing to lean into that segment of the market because, again, we think it's -- Airbnb does offer a differentiated offering for group travel.

And I guess -- beyond that, I guess, when you talk about group travel, you're talking about one group going to one property. I mean, is there an opportunity to go to [ fill ] multiple properties all at once to very large groups? Could you get into a wedding booking, where you could book 20 properties in one particular town?

Absolutely. We see people do that quite frequently in terms of choosing a destination market and funneling all of their guests through our platform. I think there's opportunities for us to better tool that and to better capture those larger events.

And I guess the counterpoint to that is you then -- particularly if you look at the U.S. where you've talked -- I think you were flattish in terms of year-on-year growth, the larger groups were growing strongly, the smaller groups must have been negative.

We are growing in the United States. I should...

Sorry.

It's the beauty of that. We are growing in the United States. It continues to be a growth market, absolutely.

But the smaller groups, I suppose, are beginning to maybe not down, but not posting strong growth. Are there -- do you still see that as a growth opportunity as the U.S. dollar growth market for the sort of core smaller group market?

I would say, generally speaking, U.S. continues to be a growth market for us. I think a couple of factors. First is when we look at the U.S. at large, what we find is that it is one of our largest scale markets in terms of overall guest penetration. And yet we see that the relative penetration by different segments, there's a pretty big divide. One thing that we were focused on last year was looking at state-level penetration and, shockingly, what you see is that Airbnb has higher levels of guest usage on the coast and less so across the center of the country. And so we've been focused on targeting our marketing efforts towards those heartland states, and we've seen nice results from those efforts. We've also recently focused on Spanish-language media and marketing to focus on the Latinx population, as that's another key demo in the U.S. that we know we are underpenetrated in.

This growth in larger groups...

Do you plan to go back there? So yes.

No. I guess, one of my points I've been trying is that that's resulted in a little bit of a disconnect maybe between the Nights numbers you're reporting, and I guess this kind of inflation-adjusted gross booking number. Is this a message you can maybe get across? Is there anything you can do to sort of help with the customer numbers, like the true volume that you're delivering?

Yes. I mean, I think the question is, is Nights Booked the best metric for us? And I would say, it is certainly -- it's a regular disclosure item for us. We know it is certainly helpful in terms of modeling the overall business. But we do encourage people to look more directly at revenue and also gross booking value in the sense that revenue is obviously what pays the bills and gives you a sense of the scale of the value we are delivering. And then in terms of GBV, which partially accounts for the larger group side, the larger listings, et cetera, I think it gives you a better sense of just the dollars flowing through our platform, where a dollar is a dollar, whereas a night is not necessarily a comparable night, depending on what kind of listing or the type of the party size that is seen in that listing.

Right. So maybe shifting on to pricing, give up on the groups for a moment. Looking to -- I guess, 2 ways we're looking at pricing: flattish in like-for-like terms, whereas, I guess, inflation is still positive this year, hotel price is still expected to be positive this year. You talked about affordability. I mean, how far do you need to go? How long does this sort of affordability drive need to run for? And can you eventually sort of start seeing those prices ticking back up again in like-for-like terms?

Yes. So just to step back. About 18 months ago, we looked across opportunities and identified pricing as a really important part of the road map. And why it was important and why it continues to be important is that overall hospitality prices are obviously materially higher than they were pre-COVID, and consumers are obviously price-sensitive. And so we began reinvesting in some of our pricing tools to ensure that our hosts have the right information, such that they can price their listings appropriately, and that we could help our hosts who oftentimes are individual hosts who don't have a sense of the overall market dynamics. We could give them information to make sure that they knew that we have a pricing relative to comparable listings in their neighborhood and, in doing so, could adjust price to drive incremental demand. I would say those efforts have been successful in terms of our goals of driving into elasticity and driving incremental demand by lowering prices where it makes sense. At the same time, what you've seen in terms of what we disclosed is that prices are not going nominally down, right? So it's not to say that you give people better pricing tools and, all of a sudden, prices actually start to decline. And so what we think is important is how are our prices trending relative to the rest of the industry and, in particular, relative to any guest alternative that the guest has in terms of looking to make a booking. And on that comparison, I would say, we feel like -- we feel quite good. In particular, what we've disclosed is that if you look at our inventory that is comparable to a hotel, in particular, urban listings, where it's a [ 2 or 1 ] bedroom, what you see is that -- for that comparable inventory, our pricing has been coming down a couple of points on a year-over-year basis, where hotel prices have continued to rise. And so it's not a perfect comparison across all of our inventory. But it gives us a sense of, are our prices moving in a direction that delivers more value to the guest and offers more price competitiveness? And on that measure, we feel really good about the tools that we put in place and their impact on overall pricing.

So now with these tools in place, I mean, can we talk about sort of properly dynamic pricing within the properties? I guess a lot of properties are still the same price pretty much every night of the year. So are you able to sort of take a bit more control of that or provide a bit more dynamic pricing? And I guess most hotel groups would say that that's upside to revenue.

Yes. So I think in terms of long-term opportunities, we have a whole road map of improving pricing. I think the things you've seen from us over the last year are part of a much longer road map. I think what is key for us upfront is you recognize that the majority of our inventory continues to be individual hosts, who are not necessarily looking at the market dynamics to understand is this a peak night, is this not a peak night. And part of getting to a point where we could be more prescriptive is making sure they trust the pricing tools that they are using from us. And so we see it as a journey as opposed to a, overnight, you see us implement something like surge pricing to all of our hosts because they -- for the vast majority of them, they want to continue to have control over their pricing. And so our opportunity is to provide them the tools and the suggestions, not necessarily take over pricing immediately, which is not what most of them are looking for.

I'm just going to conclude an audience question here. What do you see as the ceiling to vacation rental share? Could it eventually overtake hotels as the dominant form of lodging? Or is there some natural ceiling?

Yes. It's what we've been talking every day for 11 years. And in all of the early years, the number of analysis, both we did and investors did, to say what is the natural ceiling for this market opportunity for this company for -- even at a [indiscernible] level, where does this cap out? And I can say, over the 11 years, every time the analysis has been wrong in terms of how big this market could be. So when I put that out there. I think a recent data point to help color that in is Paris has been one of our top markets for years. It is our top market. And obviously, we've been getting ready for the Olympics there. And I think, a couple of years ago, people looked at our inventory in Paris and said, "It couldn't possibly get larger." It will be bigger than the hotel inventory, unless you had -- in the lead up to the Olympics, we've been able to increase supply in that market by 40% year-over-year. There is a, I believe, huge untapped opportunity in terms of people staying in homes and living in new places across the world. That's -- we've been able to achieve great scale at this point, but I think the journey is very much in the early games.

And maybe just one more question on pricing we've got here. There has continued to be an increase in the various costs of the user, cleaning service, et cetera. Is that hurting your value -- relative value proposition? And what are you doing to address that?

Yes. So cleaning fees -- nobody needs to stop me afterwards. I'm highly aware people don't like them. We have been very focused, as part of our broader pricing efforts, to increase overall price transparency to the consumer. So back in December of 2022, we introduced upfront pricing, which is a toggle for the consumer to choose how they want to see our prices displayed. Do they want to see a nightly rate before fees? Or do they want to see what's this whole trip going to cost me? And through that tool, number one, I think we've responded to a lot of negative feedback that people don't want to be surprised at the end of a checkout flow. That's kind of the first order impact in terms of giving the consumer what they want. The second is it's introduced a nice incentive for our host to better understand that the guest is not necessarily paying this -- the price that you think you set. Their -- if you had a cleaning fee, it can be substantially more expensive. And what we recognize our hosts don't necessarily understand what the guest view looks like. So we've done more in terms of helping the hosts to understand, but also through the total price display, to train this nice feedback loop for hosts to say, "Oh, wow, my price is quite high with all the fees in. Maybe I don't need a cleaning fee. Or maybe I can reduce it." And we've seen a nice reduction in both the number of bookings that have cleaning fees as well as the absolute level of the cleaning fee. So that's something that we're very focused on. We want to be both transparent to the user in terms of the overall price, and we want to be price competitive.

So one of the messages you sort of talked about driving more fees is improving the reliability. Can we read in sort of you want to improve the average quality of the project -- product as well? I know you've been throwing some products out of the system. And what's sort of driving that? Are you trying to move your sort of demographics up? Or is this more about sort of persuading people to come back again?

Yes. So one of the things I said at the start of this chat that people don't understand is that we have this pretty large consideration gap between people who are aware of Airbnb and people that have either tried it or use it regularly. And we understand that one of the reasons for that consideration gap is people aren't really sure what they're going to get, right? They may -- they might know -- they'll have reasonable expectations of what they will get when they come to the Hilton, whether they like it or not. But on Airbnb, often, people ask the question, like, will it be as I expect it to be? And what happens if something goes wrong? And so we know that, that reliability is something that prevents people from either trying us or for using us more frequently. And so what we tried to do, and this is part of a broad road map, is both increase the transparency to the user in terms of what they are going to get and also raise the overall quality on the platform. So 2 things that we've done in the last 6 months back as part of our winter release in November, we introduced something called Guest Favorites. And it's effectively a badge for 2 million of our top listings, where we've curated the inventory to identify that top approximately 20% of listings were based on the ratings data, based on review contextual text data. And then also any information we have on the platform in terms of incidents at those -- just customers who will contact at those listings. It allows us to effectively rank inventory by quality and highlight to users those listings based at -- based on everything we know as highly likely you're going to have a great experience. And part of that is to, one, just educate the consumer and help them get to a great listing quickly to make the discovery easier and higher confidence. It's also to encourage people to stay at the listings that are indeed great and reward those hosts that provide high quality. So if you think about that overall track, it's intended over the short term to provide incremental better experiences for the individuals booking today. It's also intended over a longer time horizon to increase our overall reliability on the platform, increased booking confidence and, as a result, be a medium- to long-term driver of incremental growth.

I just want to ask about Germany. So I guess it's always sometimes a bit surprising the way...

Germany.

Germany, the fourth largest economy in the world, right? Your company that's been around for 16, 17 years. It hasn't grown in their share. What as held you back? Has it been other players have been more dominant there? Or was it the category as a whole hasn't grown there? And what is the actual initiatives that you're doing to try and tackle that market?

Yes. So I think a lot of people were surprised, and this goes to your first question of like what people don't understand about Airbnb. I think a lot of people were surprised when we said, "Oh, one of our international expansion markets is Germany." How are you were you not bigger in Germany today? And what we see internally is that in Europe, per se, we have delivered or achieved significant scale at a regional level. But there's huge differences between our level of both scale and penetration in markets like the U.K. and France relative to every other market in Europe. And so the kind of first obvious place to go in terms of our expansion efforts within Europe was obviously Germany. And so the question becomes why would a country like Germany lag the other large markets in Europe? And I can talk specifically about Germany, but I think, more broadly, the conclusion is that there's different market nuances that we haven't always taken into account with either marketing or with our product localization, which presents opportunities for us to double down in specific markets to drive differential growth beyond the level that we have achieved to date. I think in Germany, there's a handful of nuances that are important for that market. I think one is Germans like to book very early, much earlier than, certainly, Americans, but also other Europeans. And so in Germany, it's really important that we have a pay less upfront payment offering such that we can get that trip booked early, but they don't have to pay all of the cash. There's a handful of things that I could go through in terms of each market, where they're not necessarily a huge lift, but we need to take a more nuanced approach to make sure that we're meeting the market where it is, we are affecting kind of local needs in the product, and we are seeking to very specific guest [indiscernible] in a way that is local and relevant. So you see us continue to do that across a variety of markets around the world, but you'll see us do it in a systematic fashion of focusing on a handful of incremental markets every year.